Tuesday, May 26, 1998 Last modified at 12:47 a.m. on Tuesday, May 26, 1998

Secret memos predicted satellite-deal criticism

WASHINGTON (AP) - Five months ago, before satellites-to-China became the latest Clinton controversy, White House aides fretted in classified memos about the reaction to allowing a U.S. firm under criminal investigation to export more satellites to China.

The aides urged President Clinton to approve the deal, but predicted it would lead to criticism. Now their fears have come true.

House and Senate committees are examining whether Clinton was helping a political supporter when he approved a satellite export to China by Loral Space & Communications, a company headed by Bernard L. Schwartz, one of the Democratic Party's most generous financial backers. Schwartz denies trying to buy political favors and said he was unaware of any controversy last February when his company obtained a waiver to place a satellite atop a Chinese rocket.

Loral is under investigation for allegedly giving China sensitive military information in a 1996 satellite deal, and the Justice Department told White House aides this year that another export waiver for Loral might scotch any hopes of winning a conviction. Why would a jury convict Loral executives for helping China in 1996, Justice prosecutors asked, if the White House decided it was OK to do so in 1998?

Now lawmakers want to know why Clinton this year waved off those Justice Department concerns and approved the deal. Similarly, they want to know why, two years ago, he overruled then-Secretary of State Warren Christopher in shifting the primary responsibility for reviewing satellite exports from the State Department to the Commerce Department, a move seen as making export approvals easier to get.

The theme of "What will the critics say?" appears again and again in some 400 pages of memos, electronic mail, letters and draft messages.

"The proposed waiver for the Chinasat 8 project might receive criticism if (Loral) is ultimately found to have contributed significantly to China's ballistic missile program," National Security Adviser Sandy Berger wrote in a memo to Clinton early this year.

"Nevertheless, the benefits of this project outweigh the risk."

Berger wrote in another memo that the proposed waiver "might be criticized for letting (Loral) off the hook on criminal charges for its unauthorized assistance to China's ballistic missile program."

"We could respond to criticisms of the proposed waiver on the following grounds," Berger wrote to Clinton on Feb. 12. He goes on to point out that the Loral satellite involved civilian communications technology, that Loral had been involved in two Chinese launches since the 1996 episode without leaking any military information, that the Justice Department probe was in the early stages, and that even if Justice had to abandon prosecution because of the waiver, the State Department could levy civil penalties against Loral.

A handwritten White House memo, apparently written by an NSC staffer, said the issue surrounding the satellite export was not the possible impact on the Justice Department probe "but whether bilateral U.S.-China concerns and economic factors outweigh risk of political embarrassment." The note cautions that the State Department, which was endorsing the waiver, was mainly concerned with following proper licensing procedure and maintaining good relations with China, "not (with) president's risk."

Taken at face value, the sheaf of memos show the Clinton administration's preoccupation with promoting high-tech trade and exports. Both the Bush and Clinton administrations had supported these deals in which a U.S. satellite maker essentially bought a ride into space on top of a Chinese rocket.

Commercial rocketry is a booming business these days with Russia, China, the United States and Western Europe competing for contracts with satellite makers. China's prices are attractive, and the United States hopes that giving China some business will dissuade Beijing from selling its missile know-how to rogue states such as Iran and Iraq. U.S. approval of the exports would reassure foreign markets that they could count on American high-tech suppliers, the administration contends.

Berger's Feb. 12 memo even argued that by putting television satellites into space over China "will promote access by Chinese citizens in remote areas to people and ideas in democratic societies."

Amid all this controversy, Loral appears to have been supremely confident it would win White House support for the satellite deal. Indeed, Loral was already under contract to China before it had Clinton administration permission - a contract that imposed millions of dollars in penalties for delay and which would have cost Loral $20 million to cancel.

Those cost concerns apparently carried greater weight in the White House consideration of the waiver than the Justice Department concerns about its criminal investigation.

While numerous White House memos pointed out Loral's cost concerns, the company left nothing to chance.

On Feb. 13, Thomas Ross, Loral's vice president for government relations, wrote Berger that "If a decision is not forthcoming in the next day or so, we stand to lose the contract. In fact, even if the decision is favorable, we will lose substantial amounts of money with each passing day."